Dear Fellow Shareholders:
The Morgan Keegan Southern Capital Fund posted a
3.14%* return for the last six months and a 7.25%* return for the calendar year
ending December 31, 1999. The fund got off
to a slow start, but rebounded strongly during the fourth quarter, rising
14.13%. The strong fourth-quarter performance propelled the Fund to a record
high net asset value of $27.95 at year-end.
The past twelve months have been challenging for the Fund. While it achieved
positive returns for the six and twelve-month periods, the Fund did not keep
pace with the popular market indices. Although broad market indices like the
S&P 500 posted over 20% returns for the year, a closer look at the Indexs
performance reveals the narrowness of the market. The median stock
in the S&P 500 was only up to 0.4%, and nearly half of its stocks posted
negative returns for the year. Of the S&P 500s return, technology stocks
accounted for 75% of the total performance, and the top ten technology and
telecommunications performers accounted for over 55% of the Indexs return,
with America Online representing the only Southern-based stock.
Similar to the overall market, the Funds performance
was also dominated by its technology holdings for the six and twelve-month
periods. Over the last twelve months, many of the Funds new additions have
been technology stocks. These new purchases, combined with the sectors
upward omentum, have significantly increased the Funds weighting in this
sector. While the South has not traditionally been known for its technology
companies, new ones are springing up, especially in states like Georgia,
North Carolina, Texas, and Virginia. We are actively searching for th
on the New Economy driven by the Internet and broadband communications.
The financial services and health care stocks were the
Funds weakest performers during the six and twelve-month periods. Three
interest rate hikes by the Federal Reserve caused investors to avoid
interest rate-sensitive financial services stocks. Fears of decreased
Medicare reimbursement and government intervention in health care negatively
impacted the prices of health care stocks. Over the past year, we have
reduced our exposure to both the financial services and health care sectors.
As we enter the new year, we believe the Fund is well positioned to achieve
strong returns. The increased exposure to technology and telecommunications
stocks should help the Fund benefit from trends in technology that are
reshaping the economic landscape. Our outlook for the market remains
optimistic despite the threat of additional interest rate increases. Strong
economic growth, solid corporate earnings, low inflation, high consumer
confidence, and a vigilant Federal Reserve should continue to provide a
the stock market. We remain committed to selecting the best Southern
companies for the Fund, regardless of market capitalization. The South,
which continues to grow at a rapid pace, provides the Fund with multiple
opportunities to invest in quality growth companies. We believe our approach
to investing will continue to reward long-term investors, and we look
forward to the new millennium ahead.
Allen Morgan, Jr. E. Elkan Scheidt
President and Director Portfolio Manager
January 31, 2000
Below are the performance comparisons of the Southern Capital Fund and other
selected indices.
Six months 1999
ended 12/31/99 Calendar Year
Southern Capital Fund* 3.14% 7.25%
Russell 2000 Index 10.96% 21.26%
S&P 500 Index 7.70% 21.04%
*Fund results in this report were computed without a sales charge unless
otherwise indicated. Load-adjusted return for the six months ended 12/31/99
was 0.04% and for the calendar year was 4.03%. Past performance is not
indicative of future results. Share price and return will vary, so you may
have a gain or loss of principal when you sell your shares.
Stocks mentioned in this report may or may not be currently owned by the Fund.
Morgan Keegan
Southern Capital Fund, Inc.
December 31, 1999
BEVERAGES 2.9%
Anheuser-Busch Companies, Inc. 14,000 $$0,992,250
The Coca-Cola Company 27,000 1,572,750
CONSUMER PRODUCTS 1.0%
The Gillette Company 22,000 906,125
CONSTRUCTION 1.3%
*The Shaw Group Inc. 45,000 1,139,063
ENERGY/ENERGY RELATED 7.0%
Diamond Offshore Drilling Inc. 33,000 1,008,563
*Exxon Mobil Corporation 22,442 1,807,984
*Gulf Island Fabrication, Inc. 67,500 632,813
*Patterson Energy 115,000 1,495,000
*Pride International, Inc. 40,000 585,000
Santa Fe Snyder Corp. 71,750 574,000
FINANCIAL SERVICES 8.0%
Bank of America Corporation 18,000 903,375
Coastal Bancorp, Inc. 45,000 787,500
The Colonial BancGroup, Inc. 73,000 757,375
Compass Bancshares, Inc. 24,471 546,009
First Federal Bancshares (Arkansas) 25,000 395,313
First Tennessee National Corporation 45,000 1,282,500
ISB Financial Corp. 20,000 275,000
SouthTrust Corporation 25,000 945,313
Union Planters Corporation 29,000 1,143,688
HEALTH CARE/PHARMACEUTICAL 5.9%
*Health Management Associates 100,000 1,337,500
*Merck & Co., Inc. 16,000 1,073,000
*Orthodontic Centers of America, Inc. 60,000 716,250
*Renal Care Group, Inc. 87,000 2,033,625
HOTEL/LEISURE 2.9%
Royal Caribbean Cruises Ltd. 51,000 2,514,938
INDUSTRIAL EQUIPMENT 2.8%
*Emerson Electric Co. 16,500 946,688
*General Electric Company 10,000 1,547,500
INSURANCE 0.7%
*Protective Life Corporation 20,000 636,250
NEWSPAPER/BROADCASTING 1.6%
*Gannett Co., Inc. 17,000 1,386,563
PAPER PRODUCTS 1.2%
*Buckeye Technologies Inc. 72,000 1,071,000
REAL ESTATE INVESTMENT TRUSTS 0.8%
RFS Hotel Investors, Inc. 35,000 365,313
Storage USA, Inc. 10,000 302,500
RESTAURANT 1.3%
*Charleys Inc. 90,000 1,181,250
RETAIL 10.4%
*AutoZone, Inc. 44,900 1,450,831
Dollar General Corporation 74,641 1,698,083
The Home Depot, Inc. 74,100 5,080,481
*Saks Inc. 54,600 849,713
TECHNOLOGY 32.2%
*America Online, Inc. 21,000 1,584,188
*Acxiom Corporation 45,000 1,080,000
*Ancor Communications, Inc. 10,000 678,750
*Artesyn Technologies, Inc. 60,000 1,260,000
*BMC Software, Inc. 35,000 2,797,813
*Concord EFS, Inc. 139,950 3,603,713
*Cree, Inc. 30,000 2,561,250
*Crossroads Systems, Inc. 9,000 760,500
Electronic Data Systems Corporation 35,000 2,342,813
*Microsoft Corporation 25,500 2,977,125
*NOVA Corporation 29,000 915,313
*Paradyne Networks, Inc. 15,000 408,750
*Qlogic Corporation 5,000 799,375
*SCI Systems, Inc. 48,100 3,953,219
Texas Instruments Incorporated 26,500 2,567,188
TELECOMMUNICATIONS 12.4%
*BellSouth Corporation 24,000 1,123,500
*Dycom Industries, Inc. 37,750 1,663,359
*SBC Communications Inc. 24,000 1,170,000
*MCI WorldCom, Inc. 129,597 6,876,741
TEXTILES 2.1%
*WestPoint Stevens Inc. 105,000 1,837,500
TRANSPORTATION 4.3%
*Eagle USA Airfreight, Inc. 65,000 2,803,125
*FDX Corporation 24,000 982,500
UTILITIES 0.3%
The Southern Company 12,000 282,000
Total Equity Securities
(Cost $51,972,017) $86,969,820
*Non-Income Producing
STATE STREET BANK & TRUST COMPANY:
*Dated December 31, 1999, 3.00%, to be
repurchased at $1,245,311.25 on $ 1,245,000
January 3, 2000 (Euro Deposit)
$1,245,000
Total Investments (cost $53,217,017) 100.5%) $88,214,820
Other assets and liabilities, (net) (0.5%) (468,912)
Net Assets 100.0%) $87,745,908
Assets:
Investments, at value
Equity securities $86,969,820
Repurchase agreements 1,245,000
Total investments (Cost $53,217,017) 88,214,820
Cash 4,190
Receivable for fund shares sold 369
Dividends and interest receivable 42,607
Other assets 16,113
TOTAL ASSETS 88,278,099
Liabilities:
Payable for fund shares redeemed 143,540
Accrued expenses 66,827
Due to affiliates 321,824
TOTAL LIABILITIES 532,191
Net Assets $87,745,908
NET ASSETS consist of:
Accumulated net realized gain on investments 2,379,104
Net unrealized appreciation of investments 34,997,803
Par value 3,139
Additional paid-in capital 50,365,862
Net Assets $87,745,908
NET ASSET VALUE and Redemption Price Per Share
($87,745,908 divided by 3,139,256 Shares of Common Stock Outstanding) $27.95
Offering Price (based upon 3% commission) $28.82
See accompanying notes to financial statements.
Investment Income:
Dividends $ 355,993
Interest 29,581
385,574
Expenses:
Investment advisory fee 440,173
Service fee 110,043
Distribution fee 110,043
Legal 21,579
Audit 7,850
Accounting and transfer agent fees 45,000
Custodian costs 7,782
Registration fees 13,840
Directors fees 6,000
Other 3,750
766,060
Net Investment Loss (380,486)
Realized and unrealized gains (losses) on investments:
Realized gain from securities transactions, net:
Proceeds from sales $15,727,431
Cost of securities sold $12,785,750
Net realized gain on investment transactions 2,941,681
Change in unrealized appreciation for the period (215,361)
Net gain on investments 2,726,320
Increase in net assets resulting from operations $02,345,834
See accompanying notes to financial statements.
Six Months Ended Year Ended
December 31, 1999 June 30, 1999
Increase in net assets from operations
Net investment loss $00(380,486) $00(596,208)
Net realized gain (loss) on investment transactions 2,941,681 (48,165)
Unrealized appreciation, net (215,361) 5,017,540
Increase in net assets resulting from operations 2,345,834 4,373,167
Capital share transactions, net (10,493,727) 5,900,039
Distributions to shareholders from:
Net realized gain on investments 0 (2,479,628)
Return of Capital 0 (106,784)
0 (2,586,412)
Total increase (decrease) in net assets (8,147,893 7,686,794
Net Assets:
Beginning of period 95,893,801 88,207,007
End of period $87,745,908 $95,893,801
See accompanying notes to financial statements.
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Organization:
The Fund commenced operations on September 22, 1986 and is registered under
the Investment Company Act of 1940 as an open-end, diversified management
investment company. The Fund invests primarily in equity securities in
Southern based companies that offer the opportunity for capital appreciation.
Security Valuation:
Investments in securities traded on national securities exchanges are stated
at the last reported sales price on the day of valuation. Securities traded
in the over-the-counter market and listed securities for which no sale was
reported on that date are stated at the last quoted bid price. Short-term
securities are valued at amortized cost or original cost plus accrued
interest, both of which approximate market.
Federal Income Taxes:
The Funds policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all its taxable income to its shareholders. Therefore, no
federal income tax provision is required.
Realized Gains and Losses on Securities:
The Fund determines the gain or loss realized on sales of securities by
comparing the identified cost of the security lot sold with the net sales
proceeds.
Other Policies:
The Fund follows industry practice and records security transactions on the
trade date. Dividend income and distributions to shareholders are recognized
on the ex-dividend date and interest is recognized on an accrual basis.
Repurchase Agreements:
It is the Funds policy for securities purchased under agreements to resell
to have market value equal to or greater than the Funds purchase price and
to have such securities taken into possession by the Funds custodian.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets
from operations during the period. Actual results could differ from those
estimates.
NOTE 2: CAPITAL SHARE TRANSACTIONS
At December 31, 1999, there were 100 million shares of .001 par value
capital shares authorized, and paid-in capital aggregated $50,369,001.
Transactions in capital shares were as follows:
2000 1999
Shares Amount Shares Amount
Shares sold 52,510 $1,362,288 716,481 $18,341,166
Shares reinvested 106,506 2,573,186
Shares redeemed 452,237)(11,856,015) (604,584) (15,014,313)
Net increase
(decrease) (399,727)$(10,493,727) 218,403 $5,900,039
NOTE 3: INVESTMENT TRANSACTIONS
Purchases of investment securities (excluding short-term investments and
other investments that are usually held until maturity) aggregated $7,008,105
in 2000.
At December 31, 1999, the accumulated unrealized appreciation of securities
with gains was $37,274,069 and the accumulated unrealized depreciation of
securities with losses was $2,276,266.
NOTE 4: INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund pays advisory fees for investment management and advisory services
to Morgan Asset Management, Inc. (Advisor) under a management and investment
advisory agreement (Agreement) that provides for fees to be computed at an
annual rate of 1% of the Funds average daily net assets up to $100 million
and .75% of the Funds average daily net assets over $100 million. The Advisor
has agreed to reimburse expenses exclusive of taxes, interest on borrowings,
brokerage commissions, distribution fees, and extraord
s to the extent that they exceed 1.5% of the Funds average daily net assets
for any full fiscal year.
Morgan Keegan & Company, Inc. acts as a distributor of the Funds shares
pursuant to an agreement, Distribution Agreement. To compensate Morgan Keegan
& Company, Inc. for acting as distributor and for its expenses incurred
under the Distribution Agreement, the Fund has adopted a Plan of Distribution
pursuant to Rule 12b-1 (the plan) under the Investment Company Act of 1940.
Under the Plan, the Fund pays Morgan Keegan & Company, Inc. a distribution
fee and a service fee, which each are accrued daily and paid
one-quarter of one percent (.25%) on an annualized basis of the Funds
average daily net assets. Amounts due to and from the Advisor and Morgan
Keegan & Company, Inc. are presented net as Due to Affiliates. The Fund also
pays Morgan Keegan & Company, Inc. for all fund accounting services and
transfer agent services which amount to $90,000, annually. Commissions of
approximately $3,725 were paid to Morgan Keegan
& Company, Inc. for execution of portfolio transactions.
Morgan Keegan & Co., Inc. also charges a three percent commission on all
sales of the Funds shares except (1) reinvestment of dividends and capital
gains; (2) sales to Morgan Keegan employees, Fund directors, and their
immediate families; and (3) sales of more than $1,000,000 (on which a one
percent commission is charged). Sales commissions retained by Morgan Keegan
& Company, Inc. from the proceeds of capital share transactions were
approximately $22,500 for the six months ended December 31, 1999.
Certain officers and directors of the Fund are also officers and directors of
the Advisor and distributor.
Six Months Ended Year Ended Year Ended Year Ended Year Ended
12/31/99 06/30/99 06/30/98 06/30/97 06/30/96
Net Asset Value, beginning of period
$27.10 $26.56 $21.64 $18.06 $14.34
Income from Investment Operations
Net Investment Income (loss)
(0.11) (0.17) (0.16) (0.11) (0.07)
Net Gains on Securities
0.96 1.46 5.57 4.64 4.08
Total from Investment Operations
0.85 1.29 5.41 4.53 4.01
Less Distributions
Dividends (from net investment income) (0.03)
Distribution (from realized gains) (0.72) (0.49) (0.87) (0.26)
Distribution (return of capital) (0.03) (0.08)
Net Asset Value, end of period
$27.95 $27.10 $26.56 $21.64 $18.06
Total Return* 3.14% 5.20% 25.32% 26.32% 28.30%
Ratios/Supplemental Data
Net Assets, end of period
87,745,908 95,893,801 88,207,007 53,925,763 37,505,196
Expenses to Average Net Asset**
1.8% 1.7% 1.8% 2.0% 2.0%
Net Investment Loss to Average Net Assets
(0.9%) (0.7%) (0.7%) (0.6%) (0.5%)
Portfolio Turnover Rate
16% 15% 28% 30% 69%
**Total return does not include front end sales load.
**2.2% before excess reimbursement and fee waiver from Advisor in 1996.
See accompanying notes to financial statements.
ALABAMA
Birmingham
(205) 879-0016
Decatur
(256) 350-1925
Fairhope
(334) 928-0555
Huntsville
(256) 539-6739
Mobile
(334) 316-3100
Montgomery
(334) 262-0100
ARKANSAS
Little Rock
(501) 666-1566
Rogers
(501) 936-7774
FLORIDA
Ft. Lauderdale
(954) 728-2800
Palm Beach
(561) 835-8141
Pensacola
(850) 434-2207
Sarasota
(941) 331-1100
GEORGIA
Athens
(706) 613-9915
Atlanta
(404) 240-6700
KENTUCKY
Bowling Green
(270) 781-0430
Covington
(606) 291-9535
Lexington
(606) 253-9769
Louisville
(502) 589-7979
LOUISIANA
Baton Rouge
(225) 344-9020
Lafayette
(337) 232-0644
Mandeville
(504) 727-9923
LOUISIANA (Continued)
New Orleans
(504) 529-1556
Shreveport
(318) 424-2000
MASSACHUSETTS
Boston
(617) 542-9515
MISSISSIPPI
Jackson
(601) 368-2200
NEW YORK
New York
(212) 319-0443
NORTH CAROLINA
Charlotte
(704) 442-4700
Durham
(919) 419-2500
Raleigh
(919) 781-8187
Wilmington
(910) 256-2406
TENNESSEE
Jackson
(901) 668-1010
Knoxville
(865) 521-6653
Memphis
Morgan Keegan Tower
(901) 524-4100
Memphis
Crescent Center
(901) 766-7700
Nashville
(615) 255-0600
TEXAS
Austin
(512) 329-6700
Dallas
(214) 365-5500
Houston
(713) 840-3600
Houston Memorial
(713) 647-5300
VIRGINIA
Richmond
(804) 225-1100
